How to manage retirement plans

Updated 8:20 pm, Monday, February 21, 2011

Retirement plans long have been a proven method for attracting and retaining good employees. At a minimum, a growing, prosperous company offers some type of retirement savings vehicle for its workers.

The new Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has toughened the requirements on all employers who offer 401(k) plans and other types of retirement plans. As a result, employers need to be much more aware of their legal responsibilities on employee retirement plans and take steps to ensure their retirement plans are managed appropriately.

The central issue is employees trust that their plans' investment committees will manage their plans soundly. Those committees are usually comprised of company executives. That act of trust has resulted in these committees being labeled “fiduciaries” who are required by law to manage another person's assets in “a prudent manner.”

The new consumer protection act has reinforced that view. Most significant, the U.S. Supreme Court has upheld that employees can sue to recover losses caused by a breach of fiduciary duty. Moreover, a business owner or members of the investment committee can be held personally liable in those cases.

Role of Security technology in active shooter situationsFox 26 Houston

McDonald's Planning Big Change for Happy MealsWibbitz

Man Films International Space Station Through His TelescopeStoryful

This Is Why Most People Would Like to Be Their Own BossBuzz 60

Coinbase Introduces the ‘PayPal of Crpyto’Fortune

In order to manage this responsibility, the Center for Fiduciary Excellence, which is the leader in fiduciary training, recommends retirement plan managers follow these seven steps:

Know retirement plan standards and laws, in particular ERISA 404(c)

Diversify plan assets

Create an investment policy statement that defines roles, details the due diligence the company will use when selecting money managers, explains the ways assets will be allocated and rebalanced and outlines how advisors will be monitored

Use only “prudent” experts and document due diligence used in selecting those experts

Monitor investment managers, experts and other service providers

Control and account for investment and administrative expenses

Avoid conflicts of interests and any transactions that are not for the exclusive benefit of the employees

Most critical, the company should review how it approves, monitors and reports on the fees, consultants and investment options associated with its retirement plan. To further reduce its risk, an employer also should consider purchasing fiduciary liability insurance.

Once your company has procedures based on these seven steps, it is imperative they be followed. Retirement plans land in hot water most frequently because the employers fail to follow this process.

It's no easy feat. There are lots of components and deadlines to juggle.

As a result, companies should consider hiring co-fiduciaries to relieve them of the administrative paperwork and share the legal liability. A good co-fiduciary will provide advice free of all conflicts of interest, be experienced in plan development and monitoring, provide management help in setting up procedures and tracking plan activities, and help educate employees on how to select investments.